Today, Hong Kong's Competition Ordinance has come into full
effect. The commencement comes three and a half years after the
Ordinance was enacted by Hong Kong's Legislative Council. The
Ordinance gives Hong Kong its first general competition law that
applies to all sectors of the economy. Understanding and complying
with the city's new set of rules will not only be important for
businesses that have a focus on the Hong Kong market, but many
other businesses with global operations.

Among the developed economies, Hong Kong was one of the last
that did not have a cross-sectoral competition regime. Hong
Kong's competition law originally covered the broadcasting and
telecommunications sectors only. This has changed today, with the
Competition Ordinance (Ordinance) coming into full effect.
Understanding and complying with the city's new set of rules is
not only important for businesses that have their focus on the Hong
Kong market, but many other businesses with global operations. Hong
Kong is one of the world's key trading hubs and the largest
re-export centre globally, with more goods passing through its
territory than that of any other country. As one of Asia's
leading financial centres, Hong Kong hosts the regional
headquarters of some of the largest financial institutions. Given
the Ordinance's broad geographical scope—an adverse
effect on competition in Hong Kong is sufficient to trigger the new
law1—the authorities in Hong Kong have the power
to reach beyond the city's borders and go after companies that
have their headquarters or principal operations outside of Hong
Kong.

Conduct Rules

The Ordinance is Hong Kong's first competition law that, as
far as anti-competitive agreements and other conduct is concerned,
applies to all sectors of the economy. The relevant provisions in
the Competition Ordinance, the Conduct Rules, prohibit two types of
anti-competitive conduct:

The First Conduct Rule prohibits agreements or concerted
practices between undertakings and decisions of an association of
undertakings that have the object or effect of preventing,
restricting or distorting competition in Hong Kong.

The Second Conduct Rule prevents an undertaking that has a
substantial degree of market power in a market from abusing its
power through engaging in conduct that has as its object or effect
the prevention, restriction or distortion of competition in Hong
Kong.

There are, albeit limited, exemptions from the Conduct Rules:
agreements or other conduct can be exempted if, for example, they
are performed by an undertaking entrusted by the government with
the operation of services of general economic interest2
or are made in compliance with a legal requirement. Conduct can be
exempted on the basis that there are exceptional and compelling
reasons of public policy that justify an exemption. The Ordinance
also provides for exemptions based on the size of the company
involved in the offensive conduct. For agreements among companies
with a combined annual turnover not exceeding HKD 200 million
(approx. USD 26 million), the First Conduct Rule only applies in
relation to serious anti-competitive conduct (price fixing, market
allocation, output control and bid-rigging), but not other
anti-competitive conduct. For businesses with a turnover of less
than HKD 40 million (approx. USD 5.2 million) in the preceding
calendar or financial year, a de minimis defence applies
in relation to the Second Conduct Rule. In addition, parties can
defend agreements or other conduct in relation to the First Conduct
Rule on the basis that they enhance economic efficiency, a defence
that is generally available also in other jurisdictions such as the
EU and the United States. Last but not least, the CC can make a
block exemption order where it is satisfied that a particular
category of agreement falls within the scope of the exclusion for
agreements enhancing overall economic efficiency.

Merger Rule

The Ordinance includes provisions prohibiting mergers and
acquisitions that have or are likely to have the effect of
substantially lessening competition in Hong Kong (the Merger Rule).
However, Hong Kong's merger control regime remains sectoral.
The Merger Rule only applies to concentrations that involve an
undertaking directly or indirectly holding a telecom carrier
licence issued under the Hong Kong Telecommunications Ordinance
(Cap. 106). Until such time, as the Hong Kong government may
determine that it is appropriate to widen the scope of application
of the Merger Rule, transactions outside the telecoms sector are
not subject to any merger control review in Hong Kong.

Two New Enforcement Bodies

The Hong Kong Competition Commission (CC) and the Competition
Tribunal (Tribunal) have the principal responsibility for
investigating and sanctioning anti-competitive conduct in Hong
Kong. Both the CC and the Tribunal have only been established
recently.

The CC is the main investigative body. The CC comprises 14
Members, including Chairperson the Honourable Anna Wu Hung-yuk, as
well as several senior executives, many of whom previously worked
in private practice or joined from other competition authorities.
In respect of anti-competitive conduct of companies operating in
the telecommunications and broadcasting sectors, the CC has
concurrent jurisdiction with the Communications Authority. The
Communications Authority has been and will continue to be the
principal regulator for the telecoms and broadcasting sector.

The Tribunal is responsible for adjudicating competition cases,
private actions, as well as reviews of determinations of the CC. It
is the Tribunal that ultimately determines whether a violation of
the Ordinance has occurred. The Tribunal is constituted by judges
of the Court of First Instance of Hong Kong's High Court and is
presided by the Honourable Mr. Justice Godfrey Lam. The Ordinance
foresees that the Tribunal will largely have the same powers and be
subject to similar procedural rules as the Court of First Instance,
save a few distinguishing features in relation to time limits, for
commencing private follow-on actions and handling of confidential
documents.

Any appeals in relation to decisions of the Tribunal will be
referred to the Court of Appeal and/or the Court of Final Appeal,
the two most senior courts in the judiciary of Hong Kong.

Enforcement Procedures and Priorities

The Conduct Rules are enforced in three phases under the
Ordinance, including a two-phase investigation process and a
prosecution phase:

Initial assessment phase: The CC seeks information from the
parties on a voluntary basis or uses publicly available sources to
decide if there is sufficient evidence to establish reasonable
cause to suspect a contravention of the competition rules.

Investigation phase: The CC has been granted a wide range of
investigative tools, including the power to issue requests for
information or documents, to conduct interviews and, if armed with
a court warrant, to undertake dawn raids. The CC may initiate an
investigation either on its own motion or if an alleged anti-
competitive conduct has been referred for investigation by a
complainant, the Tribunal, the Hong Kong government or the Court of
First Instance. At any stage of the investigation, the CC and the
parties may approach each other to discuss the matter and propose a
resolution to the CC's concerns.

Prosecution phase: If the CC has reason to believe that an
infringement of the Ordinance has taken place, it can initiate
proceedings before the Tribunal. The Tribunal has the power to
adjudicate infringements of the Ordinance and to impose fines and
other sanctions. The proceedings before the Tribunal are
adversarial in nature. Importantly, the CC does not have the power
to determine itself whether the Ordinance has been contravened;
this competence is reserved for the Tribunal.

On 19 November 2015, the CC published its enforcement policy,
setting out its intention to prioritise taking action against (i)
cartel conduct;3 (ii) other violations of the
First Conduct Rule which cause significant harm to competition in
Hong Kong; and (iii) abuses of substantial market power involving
exclusionary behaviour by incumbent businesses. The CC's
enforcement policy acknowledges that the CC does not have the
resources to conduct detailed investigations into every complaint
or competition issue it becomes aware of. It will therefore need to
focus on investigating and enforcing those matters that provide the
greatest overall benefit to competition and consumers in Hong Kong.
The enforcement policy is, however, not as specific as some
businesses may have hoped and does not indicate the sectors in
which the CC will be concentrating its efforts.

There is the expectation that the new law will be robustly
enforced. The Ordinance provides for several forms of penalties and
remedies. A company found to have infringed the First or Second
Conduct Rule can be fined up to 10% of the turnover the undertaking
generated in Hong Kong for a maximum of three years of
infringement.

In addition, the Tribunal has broad powers to disqualify
directors and issue prohibition, damage and other orders.

Leniency

The Ordinance gives companies that have participated in cartel
activity the opportunity to escape or at least get their fine
reduced if they self-report their involvement in the cartel and
hand over evidence to the authorities. Leniency programs are a key
element of antitrust enforcement regimes around the world. They can
help destabilize cartels by creating strong incentives for
companies to self-report. The main features of Hong Kong's
leniency policy are:

Leniency is only available for cartel conduct. Leniency is not
available for any other form of anti-competitive conduct.

Immunity from fines is generally only available to the first
company reporting the cartel to the authority. Other parties that
cooperate may otherwise receive beneficial treatment, including a
reduction in fines, but will not qualify for immunity from fines
under the leniency policy.

In any event, it is at the discretion of the CC to decide
whether to grant leniency.

A prospective applicant can obtain a marker securing the
applicant's position ahead of any subsequent applicant while it
gathers the information and evidence necessary to secure immunity.
In order to obtain a marker, the applicant needs to disclose
certain minimum information to the authority, including its
identity and contact details, the nature of the cartel and its main
participants.

If the CC has granted leniency to an applicant, leniency will
usually extend to its directors, officers and employees. This is
subject to the relevant individuals' cooperation with the CC
throughout the investigation and any subsequent proceedings.

A major concern for leniency applicants is that documents
submitted to the authority in connection with the application for
leniency could become available to private damages claimants. The
CC's leniency policy foresees that the CC will not disclose
material (whether or not it is confidential) provided in connection
with a leniency application. The CC's leniency policy provides
that the CC will use its "best endeavours" to protect
leniency materials and "firmly resist" requests for
disclosure, including in connection with private civil proceedings
in Hong Kong or elsewhere, unless the applicant consents to such
disclosure, the relevant information or document is already in the
public domain, the CC has terminated the leniency agreement or the
CC is compelled to make disclosure by court order or otherwise by
law. The CC apparently shares the concern other antitrust
authorities have, that disclosing leniency documents can place the
efficacy of a leniency program in jeopardy.

Distinctive Features of the New Regime

While the Ordinance and the implementing guidelines clearly draw
on precedents from other jurisdictions, in particular the European
Union and the UK, the new regime has a few distinctive features
that are noteworthy, in particular:

Warning notice: The CC issues a "warning notice"
where it has reasonable cause to believe that there has been a
violation of a Conduct Rule, but the infringement does not involve
serious anti-competitive conduct (price fixing, market allocation,
output control and bid-rigging). A warning notice must be given in
these cases before the CC can initiate proceedings before the
Tribunal. The warning notice will stipulate that the contravening
company must cease the alleged anti-competitive conduct within a
specified period of time.

Prosecutorial nature of competition law enforcement: The
establishment of an independent tribunal shows the prosecutorial
nature of competition law enforcement in Hong Kong. If the CC
believes the alleged violation of a Conduct Rule justifies a fine
or other form of penalty, it will need to prove its case before the
Tribunal. This is in contrast with jurisdictions that have an
inquisitorial enforcement system, for example the EU, where the
investigating antitrust authority itself decides on the imposition
of fines.

Follow-on actions: Where the Tribunal, the Court of First
Instance or any higher court has determined, or a company or person
has admitted, that an infringement of competition rules has
occurred, a claimant who has suffered loss or damage can rely on
that finding or admission in bringing a claim against the company
or person that committed the infringement or has been involved in
the infringement. Follow-on damage claims must be brought before
the Tribunal. Follow-on actions can significantly increase the
financial risk for companies involved in infringing behaviour. At
the same time, proving that damage has actually occurred and
quantifying the incurred loss is a significant challenge for the
claimant. In Hong Kong, there are generally no punitive or
exemplary damages. The level of damages is generally assessed based
on actual loss suffered. Currently, the Ordinance does not include
an express provision of "stand-alone" cartel damages
actions. The right to bring stand-alone actions was included in the
original draft law, but was removed at an early stage in response
to concerns by SMEs that larger companies could use damages actions
to harass and pressure SMEs. However, the Hong Kong government has
stated that it will reconsider the introduction of a stand- alone
right of action after the Ordinance has been in effect for a few
years.

Personal liability of executives: The regulator can take
actions against officers and directors of a company who have
"contravened or been involved in a contravention of a
competition rule." While there are no criminal penalties for
contravention of the Conduct Rules, the Ordinance empowers the
Tribunal to impose severe penalties on directors and officers.
Directors and officers can be liable to fines, payment of damages,
restitution orders and prohibitory or mandatory injunctions.
Directors may be disqualified for up to five years from being a
director, liquidator or provisional liquidator, receiver or manager
of a company or in any way be concerned or take part in the
promotion, formation or management of a company. In addition to
penalties imposed by the Tribunal, directors and officers may
potentially be exposed to private follow-on actions.

Criminal penalties: There are no criminal penalties for
violation of the Conduct Rules. However, providing false or
misleading information or obstructing the CC's investigations
(which includes the destruction of evidence or causing employees to
suffer certain disadvantages because employees had assisted the CC
in its investigation), may expose individuals or businesses to
criminal sanctions under the Ordinance.

Practical Implications

Hong Kong's new competition law shows many similarities to
the well-established enforcement regimes of other jurisdictions.
This means that global compliance programs, where they are in
place, will most likely already address conduct that could raise
competition concerns under Hong Kong's new rules. Companies
should then ensure that there is regular training and effective due
diligence, particularly in relation to the company's activities
in Hong Kong.

The CC stated in a press release in July this year that it has
the "internal infrastructure now in place" and is
"ready to be an effective enforcer of the competition law
which will support Hong Kong's open economy by ensuring fair
and free markets for all."4 While some initial
teething troubles will be unavoidable, we expect Hong Kong's
competition law enforcement to soon become a force to be reckoned
with. The CC will no doubt want to flex its muscles and have the
first scalps sooner than later to show it is a serious player in
competition law enforcement.

Footnotes

1 The Ordinance, for example, applies if an agreement,
concerted practice or decision has the object or effect of
preventing, restricting or distorting competition in Hong Kong,
even if: (i) the agreement or decision is made or given effect
outside Hong Kong; (ii) the concerted practice is engaged in
outside Hong Kong; (iii) any party to the agreement or concerted
practice is outside Hong Kong; or (iv) any undertaking or
association of undertakings giving effect to a decision is outside
Hong Kong.

2 Relevant conduct is exempted in so far as the
conduct rule would obstruct the performance, in law or in fact, of
the particular tasks assigned to the company.

3 Pursuant to the Ordinance, cartel conduct
encompasses anti-competitive behaviour such as price-fixing (i.e.
agreeing on customer prices or price-elements such as discounts or
price ranges), market-sharing (i.e. allocating segments of the
market amongst competitors such as by territory or customer type),
bid-rigging (i.e. subverting the normal competitive nature of
tender processes by agreeing with competitors who will make what
bids) and output restrictions (i.e. agreeing with competitors to
limit production or sales output to drive up prices or otherwise
maximize market positions).

The objective of the Campaign is to advocate and educate the public in the topic of bid-rigging, to eliminate the practice of submitting "dummy" bids to harm and defraud consumers, and to promote fair competition.

Competition law in Mauritius aims to encourage sound competition by prohibiting business practices which reduce or eliminate competition.

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